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Graff: 'Hot Mess' in Washington with Holdup of SECURE Act

Conferences & Events

 

At the opening session of the 2019 NAPA D.C. Fly-in Forum on July 23, NAPA Executive Director (and American Retirement Association CEO) Brian Graff noted that it’s a “hot mess” in Washington – both literally and figuratively. 

Expressing his frustration that the bipartisan Setting Every Community Up for Retirement Enhancement (SECURE) Act (H.R. 1994) has been held up, Graff explained that the legislation passed the House of Representatives on May 23 by an overwhelming margin of 417-3, but it has since stalled in the Senate for reasons having nothing to do with retirement policy. 

Among other things, Graff pointed to the removal of a provision that would have expanded Section 529 education accounts to permit up to $5,000 in homeschooling expenses to the list of acceptable tax-free expenses. This provision had made it through the House Ways & Means Committee, but, as Graff noted, the American Federation of Teachers successfully lobbied to have the provision removed, which raised the ire of various Senate Republicans. 

One such senator was Ted Cruz (TX), who placed a “hold” on the legislation from moving through the Senate under unanimous consent. Under this expedited procedure to approve legislation, it takes only one senator to object. After passing the House by such an overwhelming margin, the bill looked as if it were on a fast track to enactment, but the objections have only grown since then, Graff explained. 

Now various lawmakers and organizations are attacking other provisions, with the latest salvo coming from The Wall Street Journal editorial board, which raised objections over the so-called “stretch IRA” provision to require inherited IRAs to be distributed and taxed within 10 years.  

Pointing to his recent rebuttal, Graff emphasized that the ARA has nothing against people trying to reduce their taxes, but to get the provisions of the SECURE Act, Congress decided it was necessary for the legislation to be revenue-neutral with provisions such as the elimination of the “stretch IRA.” 

He further explained that there are provisions in the bill that the ARA doesn’t like – such as the increases in penalties for failing to file, or late filing of, certain retirement plan information returns – but contended that the enormous benefits of the legislation for retirement savings outweigh the pain. 

“The reality is that this legislation is going to benefit tens of millions of people,” Graff stated.

“The bottom line is we’re in this kabuki dance because of things that have nothing to do with retirement policy,” Graff further emphasized. As such, he encouraged delegates to the D.C. Fly-in Forum to urge Congress to approve the legislation soon, emphasizing how important it is to enhancing retirement security and how it’s going to impact millions of people. 

One key provision Graff pointed to in the legislation would ease the rules restricting multiple employer plans (MEPs), allowing two or more unrelated employers to join a pooled employer plan. “What’s really interesting is how much conversation this is stirring in the industry, where it would eliminate the commonality requirement,” Graff stated. “You could create your own branded 401(k) plan and sell it to plan sponsors – from a branding, marketing and distribution standpoint, it is getting a lot of attention and it really is going to change how people look at this business.” 

Other key provisions cited by Graff included the 401(k) safe harbor improvements, including:

  • eliminating the non-elective notice requirements and allowing mid-year elections of the safe harbor; 
  • increasing the tax credit for small employer plans and the auto-enrollment safe harbor; 
  • allowing long-serving part-time employees to become eligible for 401(k)s; 
  • extending the RMD beginning date; and 
  • adding a fiduciary safe harbor for lifetime income options. 

Graff emphasized that he is “still very bullish” on the legislation being enacted but was hoping that it would have happened by now, instead of later this year. “Congress has got to get this done and we’re going to be looking for every opportunity to get this done,” Graff concluded. 

Labor Department  

Turning to the Department of Labor, Graff predicted that a forthcoming rule to replace the vacated fiduciary rule will likely provide a prohibited transaction exemption that will mirror the SEC’s Regulation Best Interest (Reg BI), meaning that if you’re following the provisions of Reg BI, then you’re essentially deemed to be exempt for purposes of the IRA prohibited transaction rules. 

Graff noted that the ARA has emphasized the importance for the DOL to clarify that 401(k) plan advisors are able to work with participants on rollovers. 

Lastly, Graff noted that what’s interesting about the nomination of Eugene Scalia to be the next Secretary of Labor is that he was the lead attorney for the U.S. Chamber of Commerce in litigating the DOL’s fiduciary rule that was vacated by the 5th U.S. Circuit Court of Appeals. 

Graff expects that Scalia’s nomination will create a little bit of controversy in the Senate, given that senators such as presidential candidate Sen. Elizabeth Warren (D-MA) will be questioning Scalia during the nomination hearing. Graff also noted that while it’s too soon to tell, Scalia may also take a particular interest in the forthcoming DOL fiduciary rule, but it isn’t clear whether the rule will be out before he’s confirmed. 

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